Annuity Terms Glossary
Account Value: The current cash value of an annuity contract.
Accumulation Phase: The period of time in which funds are being contributed to an annuity and accumulating value on a tax-deferred basis.
Advisor: A professional who provides advice on investments and other financial products, such as annuities.
Annuitant: The person who receives the payments from an annuity.
Annuitize: To convert an asset or lump sum into a series of payments over time.
Annuity: A financial contract that provides a series of payments over time in exchange for a lump sum payment or regular contributions.
Beneficiary: The individual designated to receive the proceeds of an annuity upon death of the owner.
Benefit: The payments received from an annuity, usually in the form of a regular stream of income.
Bonus: A financial incentive or reward offered by an insurance company to encourage customers to purchase annuities.
Cap: The maximum amount of money the annuity can pay out in a given period of time.
Cash Value: An account within a variable or indexed annuity that accumulates earnings over time, which can be withdrawn without penalty, subject to certain conditions.
Charge: A fee charged by the annuity issuer for services or products.
Commission: A fee charged by the annuity issuer to compensate the annuity seller for their services.
Compounding: When interest earned is added to an investment, allowing it to grow faster than if the interest were not reinvested.
Contract Value: The total amount of money that has been contributed to the annuity.
Co-Owner Option: An option that allows the owner of an annuity to name a second person who will have access to and control over the annuity.
Death Benefit: A feature of certain annuities which pays out a lump sum or series of payments to the beneficiary when the annuitant dies.
Decumulation Phase; The period during which the annuitant withdraws income from an annuity.
Deferral Bonus: An extra payment given to an annuitant for deferring their annuity payments until a later date.
Deferred Annuity: An annuity where regular contributions are made over a period of time and payouts don’t begin until some point in the future, usually after retirement age.
Degree of Certainty: A risk assessment measure that expresses the probability and amount of return on an annuity.
Distribution Phase: The period during which the annuitant receives income from an annuity.
Diversification: The practice of investing in different asset classes to reduce risk and increase return potential.
Earnings Sensitive Adjustment: A feature of some annuities that allows the owner to increase their payments based on increasing market performance.
Escalation Clause: A provision in an annuity contract that provides for periodic increases to the payments.
Family Protection: A type of annuity that provides financial protection for a family in the event of an untimely death.
Fiduciary: A person or institution legally appointed to manage one’s finances, investments, and other assets.
Financial Empowerment: The process of gaining control over one’s personal finances by taking steps to ensure financial stability and growth.
Financial Independence: The state of having total control over one’s finances and being free from reliance on outside sources such as employers or creditors.
Fixed Account: An account with a fixed interest rate and a guaranteed return.
Fixed Annuity: An annuity that pays a predetermined, fixed rate of return for the life of the contract.
Fixed Indexed Annuity: A type of annuity that is linked to an index such as the S&P 500, and provides a guaranteed minimum payment.
Growth Period: The period of time during which the annuity grows in value, either as a result of compounding or outside investments.
Guaranteed Interest Rate: A fixed rate of interest that is guaranteed by an insurance company and applied to investments in an annuity.
Guaranteed Lifetime Income: A type of annuity that provides a guaranteed stream of income for life, regardless of market fluctuations.
Guaranteed Payment: An assurance from the insurance company that the annuitant will receive a specific amount of payments regardless of market conditions.
Immediate Annuity: A type of annuity where payments begin shortly after purchase and are usually set up to last until death or a certain period of time, whichever comes first.
Income Phase: The period when withdrawals are made from the annuity’s accumulated value, typically after retirement.
Index Participation Rate: The percentage of the index (or other underlying) that an annuity’s return is based on.
Indexed Annuity: An annuity in which returns are linked to changes in an index, such as the S&P 500. These annuities offer some protection from market losses and potential for growth if the index performs well.
Inflation Adjustment: An adjustment made to periodic payments from an annuity contract to account for inflation over time.
Investment Period: The length of time during which contributions are made into the annuity, typically five years or more.
Joint Guaranteed Lifetime Withdrawal Benefit: This is a type of annuity that allows two people to receive guaranteed lifetime income payments.
Joint Option: An annuity option that allows for the payments to be made to two different individuals.
Joint Protected Lifetime Withdrawal Benefit: An annuity feature that provides a guaranteed income stream for the life of two annuitants.
Joint-and-Survivor Annuity: An annuity that pays a stream of income to two people over their lifetimes, with the payments continuing until both have passed away. It is usually used by married couples or partners to provide financial security in case one partner dies prematurely.
Legacy Benefit: The predetermined payment made to a designated beneficiary upon the death of an annuity holder.
Legacy Protection Benefit: A benefit that guarantees the payment of a portion of an annuity’s death benefit to designated beneficiaries, even if the annuity value decreases due to market conditions.
Legacy: A type of annuity that provides for a payment to be made to designated beneficiaries at death.
Lifetime Annuity: An arrangement between a consumer and insurance provider under which the consumer makes a lump-sum payment in exchange for a series of payments over their lifetime.
Liquidity Risk: The risk associated with an annuity’s ability to access its funds in a timely manner.
Living Benefit: A feature of certain annuities which allows for withdrawals from the contract before retirement age without incurring surrender fees or taxes.
Market Risk: The risk of an investment’s value changing due to changes in market conditions.
Market Value Adjustment: A provision in an annuity contract that adjusts the surrender value of a policy downward if the market is performing poorly.
Market Volatility: The degree of change in the price of a security over time.
Maturity Date: The date on which the contractual obligations of an annuity are fulfilled and all payments are made.
Minimum Value Guarantee: A benefit that guarantees the payment of a minimum amount, regardless of market performance or other conditions.
Mortality & Expense Risk Charge: A fee charged by insurance companies for expenses associated with mortality risk (the risk of death).
Nominal Rate of Return: The interest rate stated on an investment before taking into account the effects of inflation.
Ongoing Payment Annuity: A type of annuity where a fixed amount is paid out periodically, usually monthly.
Open Period: The period of time during which a policyholder may make any changes to their annuity contract or surrender the contract for its cash value.
Participation Rate: An annual rate at which the value of an annuity increases over time, as determined by market performance.
Payout: The amount of money received from an annuity at regular intervals.
Policy Loan: An arrangement where a policyholder can borrow against the cash value of an annuity, with interest due at a specified time.
Premium: The amount of money paid to an insurer in order to purchase an annuity.
Purchase Payments: The initial premiums paid to purchase an annuity.
Qualified Annuity: A type of retirement plan funded with pre-tax money and managed by an insurance company. The funds in the annuity grow tax-deferred until they are withdrawn, at which point they are taxed as ordinary income.
Qualified or Non-Qualified Deduction: A qualified deduction is an expense or payment that can be subtracted from a taxpayer’s income, reducing their taxable income and thus reducing the amount of taxes they owe. Non-qualified deductions are not eligible for tax breaks.
Retirement Goals: Refers to the individual’s desired retirement lifestyle and level of income they desire.
Retirement: A period of time when a person has stopped working and is no longer actively earning income, typically due to age.
Rider: An optional feature of an annuity contract that can provide additional benefits such as a death benefit or the ability to increase payments if the annuitant’s health deteriorates.
Risk Appropriateness: The degree to which an annuity or other financial product meets a person’s specific needs and risk tolerance.
Risk Tolerance: The amount of risk an individual is comfortable taking on when investing in annuities.
Risk-Adjusted Returns: The return on an investment relative to the risk taken when investing in annuities.
RMD (Required Minimum Distribution): A minimum amount of money that must be withdrawn from an annuity each year after the person reaches age 70 ½.
Roll-Up: The increase in the value of an annuity due to compound interest over time.
Single Premium Immediate Annuity: An annuity agreement in which a lump sum payment is made to the annuitant and payments begin immediately.
Sinking Fund: A fund set aside for a specific purpose, such as paying off a debt or making periodic payments into an annuity.
Spending Phase: The phase of an annuity when payments are being made to the annuitant.
Spousal Continuation: An annuity option that provides the surviving spouse with a percentage of the annuitant’s income stream in the event of their death.
Subaccounts: Separate accounts, often managed by an insurance company or other financial institution, that are used to invest the funds in a variable annuity.
Surrender Charge: A fee that may be charged to an annuitant if withdrawals or other changes are made to the contract during the early years of ownership.
Surrender Value: The amount that can be withdrawn from an annuity contract without incurring penalties or additional charges.
Tax-Deferred: An annuity option where taxes on earnings are deferred until withdrawals are taken from the account.
Tontine: A form of annuity plan in which people contribute to a fund and receive income payments until the last surviving member passes away; at that point, the remaining funds are given to the last survivor.
Variable Annuity: An annuity with an investment component to it; its payouts can vary depending on how the underlying investments perform.
Vehicle: The method of payment for an annuity, such as a life insurance policy, bank account, or other investment.
Waiver: A clause in an insurance contract that grants the insurer permission to waive or forgo certain obligations, such as premium payments.
Withdrawal Base: The amount of money that can be withdrawn from an annuity on a regular basis.
Withdrawal: The process of taking money out of an annuity.
Yield: The amount of money earned from an investment, expressed as a percentage.